TaxTMI 
TaxTMI 
2002 (7) TMI 92
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....of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance or dissolution. Explanation.--For the removal of doubts, it is hereby declared that where before the discontinuance of such business or dissolution of a firm or association hitherto assessed as a firm or association, or, as the case may be, on the company, the crop is harvested and disposed of, but full payment has not been received for such crop, or the crop is harvested and not disposed of, the income from such crop shall, notwithstanding the discontinuance or dissolution be deemed to be the income of the company, firm or association for the year or years in which it is received or receivable and the firm or association shall be deemed to be in existence, for such year or years and such income shall be assessed as the income of the company, firm or association according to the method of accounting regularly employed by it immediately before such discontinuance or dissolution." As stated earlier this was introduced as an amendment by Act No. 18 of 1997 w....
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....spect of any coffee delivered to the Coffee Board was rarely received in one year and may have been received over a period of three to four years. The actual income was liable to be computed in accordance with the method of accounting regularly employed by an assessee. It was open to the assessee to keep accounts on the cash system. There was a glaring gap with respect to post-dissolution and that escaped tax. There was no provision for income received subsequently after say two or three years from the Coffee Board with respect to post-dissolution period during the relevant accounting year. This had to be remedied. The remedy was by an amendment to section 26. Accordingly, section 26 of the Act was substituted by Act 10 of 1987, by inserting section 26(4) to prevent escape of tax with respect to the post-dissolution period. Section 26(4) as it then was before the impugned amendment in effect states that after discontinuance of the firm the sums received shall be deemed to be the income of the recipient and shall be charged to tax in the account of the recipient. In other words with respect to pre-dissolution the tax was deemed to be the income of the firm and with respect ....
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....ontinuance. Explaining this provision the Division Bench of this court in E.M.V. Muthappan's case [1990] 184 ITR 161, has pointed out that since the sale proceeds received is income relating to agricultural activity carried on during the earlier years, it must be deemed to be the income of the recipient, as the original assessee is no longer continuing the business and, therefore, is liable to tax in the year of receipt in the hands of the recipient. It is, therefore, clear that this provision applies to a case where the person carrying on the business discontinues it and the income due to him, he being the original assessee, is received by another after the discontinuance of the business. In such a case, income received by the recipient could be charged to tax in the year of receipt. There is nothing in this provision to indicate that where the firm is dissolved and some income is received after the dissolution in respect of agricultural produce supplied by the firm before its dissolution, the firm itself could be assessed in the year of receipt of income notwithstanding its dissolution. Even in Uddappa Gowda's case, referred to above, the Division Bench dealing with the Explanati....
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....n respect of a firm as if it was not dissolved for the purpose of assessment. Section 27 of the Act reads as follows: "27. Liability in case of discontinued firm or association.--(1) Where the business of a firm or association of persons is discontinued or such firm or association is dissolved, the Assistant Commissioner of Agricultural Income-tax shall make the assessment of the agricultural income of the firm or association of persons as if no such discontinuance or dissolution has taken place and all the provisions relating to the levy of penalty or any other sum chargeable under any provisions of this Act shall apply, so far as may be, to such assessment. (2) Every person who was at the time of such discontinuance or dissolution, a partner of such firm or a member of such association and the legal representative of any such person who is deceased, shall be jointly and severally liable to the assessment on such agricultural income and also to pay the amount of agricultural income-tax, penalty or other sum payable and all the provisions of this Act, so far as may be shall apply to any such assessment or imposition of penalty or other sum." The existence of an assessee at....
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....se [1997] 227 ITR 421 had specifically held that there was no ambiguity in the interpretation of section 26(4) of the Act. The Division Bench in Cardoza's case [1997] 227 ITR 421 (Karn), further held that the Agricultural Income-tax Officer shall refund the amount that might have been collected in pursuance of the proceedings contrary to section 26(4). It is thereafter by the Karnataka Taxation Laws (Second Amendment) Act, 1997, the whole of section 26 has been amended which is impugned in the writ petitions. Section 26(4) has been extracted earlier. Since the grievance of the appellants is only with regard to the Explanation to section 26(4), we shall extract the Explanation once again as contained in section 26(4). Explanation to section 26(4) of the Act reads as follows: "Explanation.--For the removal of doubts, it is hereby declared that where before the discontinuance of such business or dissolution of a firm or association hitherto assessed as a firm or association, or, as the case may be, on the company, the crop is harvested and disposed of, but full payment has not been received for such crop, or the crop is harvested and not disposed of, the income from such crop sh....
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....f Cawasji's case [1984] 150 ITR 648; AIR 1984 SC 1780. Paragraphs 15 and 16 read as follows: "15. In view of the aforesaid judgment and order passed by the High Court, amounts collected by the State by way of sales tax on items of excise, health cess and education cess on arrack or special liquor from the appellant became refundable to the appellant. The impugned amendment has been passed, as the Statement of Objects and Reasons which we have earlier set out clearly indicates, to override the judgment of the High Court and to enable the State to hold on to the amount collected as sales tax on excise duty, health cess and education cess, if any, on arrack or special liquor. It has to be noted that the said judgment of the High Court in the earlier case had become final and conclusive inasmuch as the special leave petition filed against the judgment by the State was withdrawn. The State, instead of seeking to test the correctness and effect of the judgment and order of the High Court, thought it fit to have the judgment and order nullified by introducing the impugned amendment. Tile amendment does not proceed to cure the defect or the lacuna by bringing in an amendment providing f....
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.... refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrong fully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6 1/2 per cent. to 45 per cent. and further proceeds to nullify the judgment and order of the High Court. In our opinion, the enhancement of the rate of duty from 6 1/2 per cent. to 45 per cent. with retrospective effect is, in the facts and circumstances of the case, clearly arbitrary and unreasonable. The defect or lacuna is not even sought to be remedied and the only justification for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment. The vice of illegal collection in the absence of the removal of the illegality which led to the invalidation of ....
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....P. No. 2397 of 1988 (L.P. Cardoza's case [1997] 227 ITR 421) and other connected matters. The reference to W.P. No. 2397 of 1988 and other connected matters in the Reasons and Objects of the impugned amendment is the judgment rendered by the Division Bench reported in L.P. Cardoza's case [1997] 227 ITR 421. In other words in L.P. Cardoza's case [1997] 227 ITR 421 the Division Bench of this court directed refund of the amount to the assessees by the Agricultural Income-tax Officer since the proceedings were quashed. It is exactly to overcome the judgment in L.P. Cardoza's case [1997] 227 ITR 421 (Karn), the Amending Act was introduced retrospectively. This finds a place in the Objects and Reasons set out in the Bill of the impugned amendment. The learned single judge was perfectly right in holding that the State has every right to bring in amendments retrospectively and to bridge a lacuna or a defect. The State has also every right to add Explanations by way of amplification of a section in the parent Act by an amendment; but, we are of the view that such amendments brought retrospectively must not be only for the purpose of nullifying a judgment where there was no lacuna o....